What could happen if a VUL policy’s cash value drops to zero?

In a Variable Universal Life (VUL) policy, the cash value serves as a savings component that can grow over time, influenced by the performance of the underlying investments chosen by the policyholder. If the cash value drops to zero, it indicates that the account may not have sufficient funds to cover the policy's costs, which include mortality charges and administrative fees.

If the cash value reaches zero, and there are no additional premium payments made by the policyholder to keep the policy active, the insurer may declare the policy to have lapsed. This means that the coverage will stop, and the insured will no longer have the protection that the policy was meant to provide. Policyholders need to be aware of this risk, as a lapse could result in loss of coverage and potential difficulty obtaining new insurance in the future.

In contrast, while a refund may seem appealing, insurance companies generally do not refund premiums once a policy is issued unless specified in the terms of a return of premium policy. The cash value cannot be automatically restored without further action and investment, and the death benefit typically does not see a doubling effect due to cash value depletion. Therefore, if the cash value drops to zero, the most critical consequence is that the policy could lapse if the premiums are